NFTs are dominating the headlines and everyone from Melania Trump to Reese Witherspoon is getting into the game. Should you be buying NFTs? Is there anything to the hype that’s worth investing in? Before you download any apps or buy virtual art or a Taco bell gif (yes, that’s a real thing), there are some basics you should be aware of. NFT is short for “non-fungible token” — a cryptoasset. It’s supposed to be a new kind of totally digital ownership- a way to prove, beyond a shadow of a doubt, that you own an image or a file. How do NFTs wor? NFTs are minted on the blockchain. If you’re confused, stay with me for a second.
You may have heard of blockchain technology — it’s been pretty hot for the last few years. Essentially the blockchain is a digital way of storing information, and it looks exactly how it sounds. Picture a chain of blocks that stretches on forever. Each block stores a specific piece of information. The information is public, and the blockchain in maintained by every day people. There’s no government, country, or single organization that oversees it.
Here’s an example; let’s say you want to buy one Bitcoin. Your purchase of the Bitcoin would be registered as one block on the blockchain. Let’s say next you use your Bitcoin to buy a cup of coffee, now that purchase is registered as a new block. Each individual transaction has its own individual block. When you follow the chain, you can see someone’s entire translation history, from selling to buying to creating.
Minting is the crypto world’s way of saying “created.” When you mint an NFT, you are solving complex equations on your hardware to create a new NFT. Then when the NFT is created, you have a specific code that pinpoints you as the owner.
Why are people so hyped on them? Why does this matter? The idea is that when you have an NFT as proof of ownership, you have a legal relationship to your item or art. Let’s say you create a digital image of Bruno from Encanto — even though we are NOT talking about Bruno. If you mint the image as an NFT, you now have a creative AND legal relationship to the art. Your NFT proves you are the owner of that image, and you can do things like lease the image out for other people to use. If someone else copies the image and tries to sell it, you can use your NFT as proof that it’s yours and yours alone.
This all may sound pretty cool but, like with anything else, there are cons to all these pros. There are three major issues with NFTs, and everyone should seriously consider them before buying anything.
Energy use: NFTs use a crazy amount of energy. Remember those equations you have to solve to mint an NFT? That all requires a LOT of electricity.
One artist in France created six NFTs of his work, and then sold them online. Within seconds they were gone. But the energy use of the NFT creation and subsequent sale equaled the amount of energy the artist would use over two full years in his studio.
All of this makes NFT (and crypto in general) very bad for the planet, and worse for your personal carbon footprint. Minting, selling, or buying anything on the blockchain releases a lot of carbon into our atmosphere, and is becoming a huge contributor to climate change very quickly.
Scams: While scams are all over the financial world, they seem to have found a sweet spot in the NFT community. The NFT community has grown quickly, and formed many smaller communities within itself. These smaller communities abound with scams, commonly called rug pulls.
Know the phrase “the rug was pulled over my eyes”? That’s where this NFT phrase comes from. A rug pull is a scam promotion of an NFT on social media. People will hype up a certain NFT or a certain set of NFTs, and drive up the price. Once the price is where they want it, the scammer sells, and the price generally falls to zero. This happens very often in the NFT and crypto world and since there is no overseeing body, like a government or a banking system, there is nothing that can be done if you get scammed. There’s no one to report the scam to, and no insurance to replace the money you’ve lost.
Copycats: While NFTs do come with that code that makes them each unique, there’s actually nothing stopping someone from simply right clicking and copying your NFT online. Sure, they won’t have the code, but they have the image.
This has become such a major sticking point for the NFT community that even our collective boo Keanu Reeves has publicly mocked NFTs. Someone can simply copy and paste your NFT as their profile pic, put it in their presentation, or just use it as their phone backdrop.
So now the question is, should you buy NFTs? A lot of what we hear around NFTs are the people who are making serious bank off them. And there’s definitely opportunity to do so! It’s still early in the NFT world, and if you can get a good understanding of them, and have the time to dedicate to them, there is absolutely the chance to make some money. Just remember there is also the chance of getting scammed.
For our community, I’d say NFTs are more trouble than they’re worth. In the stock market — which has its own share of risk and reward — there are at least several ways to protect yourself from scammers, and laws that give individuals recourse against bigger companies. Investing is accessible at ANY age and though it’s daunting for many of us since we did not grow up with any exposure to investing, the fact is it’s easier to get started and it’s a safer bet.